I get SSDI Childhood Disability Benefits on my disabled father’s record. What would be the effect on my benefits if I began trading stock and options, not as long term investments but closer to what would be considered day trading? I don’t want to violate any rules by trading stock and doing research in making a profit from my investments/trades. Would this be considered a form of entertainment like gambling at the casino is or more like self-employment?

Sid
Blackwell WI

Dear Sid,

You are not violating any Social Security Administration (SSA) rules by trading stocks and day trading; Social Security Disability Income (SSDI) beneficiaries can pursue whatever interests or enterprises they wish. However, if your activity is a business, SSA will look at it as self-employment and consider it to be work. The SSDI definition of disability is directly linked to a person’s capacity to do substantial work regardless of the nature of the person’s disabling condition; so if your activity is self-employment and substantial and sustained for a certain period of time, the possibility arises that you may be considered no longer disabled for SSA purposes and your benefits would stop.

SSA follows the Internal Revenue Service (IRS) regarding the definition of a business. Normally if a person intends to make a profit or produce income on a continuing basis from an activity, it is a business. (POMS RS 01802.001 ff)

Special IRS rules apply to traders in the business of buying and selling securities for their own account. If a trader regularly seeks to profit from daily market movements in the prices of securities and not just from dividends, interest, or capital appreciation, and if the activity is significant, it is a business and subject to self employment and FICA tax. (http://www.irs.gov/taxtopics/tc429.html)

Other factors that IRS considers in determining if trading is a business are: typical holding periods for securities bought and sold, the frequency and dollar amount of trades during the year, the extent to which the activity produces income for a livelihood, and the amount of time devoted to the activity. Consulting with a tax advisor or expert may be appropriate to clarify these issues and your options.

If your trading activities do not qualify as a business, you are considered an investor and not a trader, and you would not be self employed for IRS or SSA purposes (though any income realized would still be subject to regular income tax.)

If your trading activity is self-employment, then SSA considers your net profit (Net Earnings from Self Employment or NESE) and possibly other factors (such as the number of hours you work in a month) in determining your nine-month Trial Work Period and then in applying the $1000 per month Substantial Gainful Activity (SGA) standard. For SGA purposes, SSA looks at your month by month net income although averaging over a period of months is often possible. (Please see my posting of February 17th, 2010 which discusses self-employment in more detail.)

As you can see, self-employment in general and trading specifically can be complicated and is reviewed on a case by case basis by SSA. There may be other related factors involved in your situation that you are unaware, so ultimately discussing the issue with SSA will be needed to get an authorized answer.

I hope this works out so you can pursue your interests in the way you want.